488 16 Key Provisions of the Acquisition Agreement
vendor would prefer a prospective bidder to show that its bank has given a binding
promise to lend and that the prospective bidder has “certain funds”.^96
Bids, due diligenge. After prospective bidders have submitted the preliminary
bids, a small number of potential acquirers will be identified and given an oppor-
tunity to conduct a due diligence review.
For this purpose, the vendor and the target prepare a data room containing
documents that help bidders to verify information disclosed by the seller. Docu-
ments contained in the data room will enable prospective bidders to more rapidly
focus on and address key legal and financial issues than is the case in the tradi-
tional private sale.^97 Typically, prospective bidders will be given access to vendor
due diligence reports prepared by reputable external firms. Because of the nature
of the auction sale, a prospective purchaser will neither be expected nor permitted
to do much due diligence work of its own in the target company.^98
Agreement. As the process is controlled by the seller, the first draft acquisition
agreement typically contains just a few general warranties which are both quali-
fied and diluted. Warranties typically are qualified by the contents of the data
room. They are diluted by: high materiality thresholds; deductible baskets, caps on
the liability of the seller (the lower of a percentage of the purchase price or a low
fixed amount); and the expiry of rights to make claims based on warranties upon
completion of the acquisition.
Finally, the vendor’s or target’s board will choose one of the bidders and the
transaction will go forward in much the same way as in the traditional single bid-
der format.^99
Example. For example, the following process is used when a seller decides to
sell a real estate portfolio and contacts advisers. The same process would be used
in a “share deal” or an “asset deal”.
(^96) Diem A, Akquisitionsfinanzierungen. C.H. Beck, München (2005) § 2 number 22.
(^97) Schmidt KM, op cit.
(^98) Ibid.
(^99) Bainbridge SM, Mergers and Acquisitions. Foundation Press, New York (2003) p 174.